Four ‘hidden’ tech stocks to invest in

Amazon and Google are not the only options. James Connington uncovers under-the-radar technology firms

For many investors, technology means “Faang” – Facebook, Amazon, Apple, Netflix and Google – but these are far from the only options for gaining exposure to the impact of technological change on day-to-day life.

The share price growth of the Faang stocks has been one of the main drivers of the soaring American stock market. However, while many professional investors still back the firms, 200 or more fund managers around the world surveyed in Bank of America Merrill Lynch’s monthly survey have ranked these stocks as the “most crowded” investments on earth for four months running.

Recent examples of investments voted the most crowded in this survey have collapsed spectacularly. Bitcoin occupied the top spot the month before its price collapse began, as did investors’ bets against volatility returning to markets shortly before February’s global share sell-off.

Companies such as Facebook and Google also now find themselves at the heart of debates about privacy, election influence and personal information security.

Stepping away from these giant companies and the cutting edge of the technology world, there are a variety of alternative stocks to consider located much closer to home.

Some wouldn’t typically be thought of as technology firms but are successfully applying new technologies within their existing business. Others simply stand to benefit from the rise of online shopping and other trends, and are positioning themselves to capture that growth.

Steve Clayton, a fund manager for Hargreaves Lansdown’s HL Select funds, said: “Investing in pure technology firms, those that are working at the cutting edge, has always been a risky business – but being blind to technology’s transformational power is equally dangerous.

“Applying digital business models to existing markets can be hugely profitable. We look for stocks that are using technology to reshape existing industries and take market share.” Mr Clayton described such firms as “tech stocks in disguise”.

Here are some examples owned by Mr Clayton or other fund managers.

Market value £1.8bn; pre-tax profit £81m; turnover £475m Internet and smartphone-based fastfood delivery has been a huge growth area in recent years, with companies such as Just Eat producing huge returns for shareholders.

Domino’s may still be associated with high street shops but the vast majority of its orders are placed online.

Mr Clayton said: “Domino’s moved into the online world early on and now almost 80pc of orders come in via digital channels. People who order through an app spend more as they’re prompted to add extras to their order.

“Orders then go straight to the kitchen, cutting costs and improving profitability. Its digital strength has allowed Domino’s to become the dominant player in the booming pizza delivery market.”

The stock is a top-10 holding in the HL Select UK Growth Shares fund.

Market value £3.6bn; pre-tax profit £193m; turnover £311m Amazon is the ultimate example of a “disruptive” business, but there are a host of companies that perform a similar role on a much smaller scale.

Auto Trader, founded in 1975, started out as a magazine, but this ceased publication in 2013 to allow the company to focus on its online business.

Mr Clayton said: “Auto Trader disrupted the traditional listings market for cars. It has captured a massive share of the revenues that used to go to traditional publishers and is still growing profits at a fair clip.

“It’s not inventing anything new, simply using the technologies that already exist to reshape the industry in its favour.”

The stock is a top-10 holding in a number of funds, including Baillie Gifford UK Equity Alpha and Janus Henderson Global Equity. Market value £455m; pre-tax profit £16m; turnover £340m The growth of online shopping has handed a huge opportunity to logistics companies, as the large volume of packages and demand for fast delivery pose significant new challenges.

Clipper Logistics, founded in 1992 and floated on the stock market in 2014, offers services for traditional

‘Domino’s has become the dominant player in a booming market’

and online retailers, including handling returns, transport, providing warehouse space and assisting companies in getting online.

Alex Game, one of the managers of the Unicorn UK Growth fund, said: “Clipper Logistics helps customers such as John Lewis and fashion firms Asos and SuperGroup to address the challenges posed by internet shopping. Consultancies are another beneficiary of rapid disruption, as the services of those with a technology specialism are increasingly in demand.

Ascential owns One Click Retail and Clavis, which Mr Clayton described as “fast-growing digital consultancies that can advise brand owners on how to win in a digital environment”.

He added: “This allows Ascential to get more exposure to the fastgrowing digital economy. It has funded this process by selling off older business units that have less exposure to online.”

The company is among the top 10 holdings of 16 different funds, including Old Mutual’s topperforming UK Mid Cap and UK Dynamic Equity funds and Columbia Threadneedle’s UK Mid 250 fund.

Energy switchers could be missing out on almost £205 every year by shunning the smaller suppliers. Switching supplier is often the best way to cut your bills, with an average annual saving of £263, according to Energyhelpline, the price comparison service.

But data from The Telegraph’s energy switching service, which is powered by Energyhelpline, shows that almost 70pc of those who switched in the past year chose one of the “Big Six” suppliers – British Gas, E.On, SSE, Npower, Scottish Power and EDF Energy.

There are now more than 50 companies providing energy in Britain, and the likelihood is that a lesser-known name will be cheaper.

Energyhelpline analysis shows that the cheapest tariff with a Big Six supplier would save an average consumer £162, compared with £367 across the whole market – a difference of £205.

Record numbers of consumers are switching supplier. Figures from ElectraLink, the industry data analysts, show that almost 5.2 million switched in the past 12 months.

Mark Todd of Energyhelpline said many consumers were still wary of moving to a company they had never heard of and were put off by highprofile collapses such as that of Future Energy earlier this year. However, even if your supplier did go bust, your supply would not be cut off. The regulator’s safety net means you will be automatically switched to a new supplier after a “competitive process”.

Mr Todd said smaller suppliers were often less expensive as they had smaller workforces and cheaper premises and were not subject to “green” taxes. But the Big Six offered other benefits such as online meter readings and accounts, he added.

Consumers can check a company’s customer service record before they switch using Citizens Advice rankings, which take into account complaints and the clarity of bills.

Mr Todd said: “The choice is the important thing. You can go with a big name and have peace of mind, you can go with a small name which is really cheap or you can go with a green supplier.”